The Nexus of Financial Inclusion and Financial Stability

Policy makers and regulators have
devoted much effort to reforms aimed at improving financial
stability in response to lessons from the 2007-09 crisis. At
the same time, much effort has also been directed to
promoting greater financial inclusion as an enabler of equal
opportunity. To some extent, these endeavors have been
exerted in silos, neglecting the possibility that financial
inclusion and financial stability could be significantly
intertwined, positively or negatively. If there are
synergies or trade-offs between inclusion and stability,
policy decisions must be informed, and the policy setting,
design, and implementation adjusted accordingly. This paper
(i) discusses the relationship between financial inclusion
and stability, (ii) illustrates empirically interactions
between the two financial sector outcomes, and (iii)
outlines policy challenges stemming from these interactions.